During the same shoot for the video on OTC clearing, I spoke with CME about the demand for data center space in financial services and how that impacts their strategy for the new Aurora, IL data center.
Its no secret that CME is one of the few firms in contention to be a major interest rate swap and CDS clearinghouse. This is a promotional video from CME that I make a quick cameo in, talking about the eventual growth in demand for swaps as the industry gets past the short term pain of change and benefits from the efficiencies of the new model. Its also worth noting that today CME announced its latest swaps clearing numbers. You can also view this video at CME.com.
Here’s more proof that the exchanges are quickly becoming technology companies – if they’re not already. This network sounds oddly like NYSE’s SFTI. Nevertheless, its easy to see how this makes sense for CME and should generate them even more revenue beyond the $45 million they already make on this kind of service:
Traders striving to ensure the fastest possible time to market likely will gravitate toward that offering. The “backbone” effort is seen appealing to futures brokers and fund managers that don’t need to do business at top speed, but still have to be competitive, according to Kevin McPartland, director of fixed-income research at Tabb Group.
“Even if you’re a long-only asset manager doing big block trades, your technology still has to be up to a certain level of sophistication to make sure you’re getting the best possible execution,” McPartland said.
Read the full story at the Chicago Tribune.
This week the CME and New York Portfolio Clearing (NYPC) both made announcements related to how they’ll help clients by allowing them to cross margin various interest rate related products. Bloomberg News does a good job of explaining the whole thing here. TABB’s research director and I debate the merits of both proposals and try to figure out who will win and if this all makes the world a riskier place.
Execution and clearing mandates for OTC derivative trades are still nearly a year a way by my estimates, but the Street is already getting ready. While Deutsche Bank and Bluemountain Capital executed CDS trades through Tradeweb and cleared via the CME and ICE, Barclays was busy rolling out its new electronic CDS trading product for clients. My comments in the article explain the status of the move to a post Dodd-Frank world:
“Currently there is little demand from clients to trade CDS or other swap products electronically; liquidity is still thin and brokers provide needed market color over the phone,” said Kevin McPartland, senior analyst at research firm TABB Group. “But availability today will leave everyone more comfortable when the big day comes.”